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Obama seen giving himself wiggle room with call for permanent tax credit

Source: Nick Juliano, E&E reporter • Posted: Friday, April 12, 2013

President Obama’s budget proposal calls for the permanent extension of a key renewable energy tax credit — an approach that goes beyond even what the credit’s main beneficiary says it needs to thrive and that observers say allows room to negotiate a proposal that falls short of the president’s initial request but still allows wind and other beneficiaries to thrive.

The budget released yesterday calls for a permanent extension to renewable and efficiency incentives, such as the production tax credit. The wind industry is the largest beneficiary of the 2.3-cent-per-killowatt-hour credit by virtue of its position as the largest non-hydro renewable energy source, but it also provides support for geothermal, biomass and other renewable electricity producers.

No one expects the credit to win a permanent extension from Congress, and even the American Wind Energy Association last year wrote to Congress outlining a way to phase out the credit by 2019 while finding other ways to support the industry. Such an approach would allow the industry to “become cost competitive without the PTC,” the group’s former president wrote at the time (E&E Daily, Dec. 13, 2012).

Wind industry lobbyists yesterday said they are waiting for guidance from the Treasury Department on how expansive a PTC change Congress implemented in January will be. As part of the “fiscal cliff” deal, lawmakers agreed that projects that have “commenced construction” by the end of this year will be eligible for the credit, rather than requiring wind farms and other eligible facilities to be in operation by that time. But it remains to be seen how much work or investment will be necessary to meet that construction criterion and how many years developers will have to complete those projects.

The PTC’s fate could be decided within the broader negotiations in Congress over how to overhaul the tax code for the first time since 1986. Lawmakers on the House Ways and Means Committee and Senate Finance Committee have been meeting privately for months on the topic, and additional details are expected to be rolled out over the course of this year. But it remains an open question whether tax reform will become a reality.

Sen. Ron Wyden (D-Ore.), who is a senior Finance member and chairman of the Energy and Natural Resources Committee, said he will be intimately involved in the future of all energy tax incentives as tax reform heats up. But he declined to comment on the specifics in Obama’s budget proposal yesterday, saying he had not had a chance to review the document.

“I think we need to have parity between energy sources and technological neutrality,” Wyden said. “If you don’t, you can’t move towards a more market-oriented approach to energy, and I am a market-oriented Democrat.”

The wind industry’s lobbying strategy is still a work in progress, lobbyists said, but one source acknowledged that the industry “can’t walk away from [its] commitment” to accept an eventual PTC phaseout.

So why is the president staking out a position that goes beyond even what the PTC’s main beneficiary thinks it can get?

“It may be to position himself so that at the end in a compromise we get something close to what we need,” said Sen. Tom Carper (D-Del.), a proponent of renewable energy credits who said he had not discussed the idea with the White House and was speculating on the president’s motives. “In the end, if we can’t always get what we want, we can get what we need.”

Sen. Charles Grassley (R-Iowa), who sponsored the first PTC bill more than 20 years ago, said Obama’s proposal would be a bridge too far.

“The only way we’re going to have credibility on wind is to have a three- or four-year phaseout, with the industry itself saying it’s going to be a mature industry at that time, and that they don’t need it anymore, just like ethanol is now,” Grassley told E&E Daily yesterday.

First instituted in 1992, the PTC has been typically extended for just a year or two at a time and has expired on several occasions, followed by a steep drop in activity in the wind industry.

For its part, AWEA said it is encouraged by Obama’s emphasis on supporting the industry and emphasized a need for predictability in what it can expect from the government.

“We are very encouraged to see the President place such a high priority on predictable incentives to drive continued innovation, and end the stop-start cycle of intermittent tax credits,” AWEA spokeswoman Ellen Carey said in an email. “We have asked Congress, the Administration, and anyone who will listen for greater stability, just as we did in our December letter to Congress.”